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This study assesses the effect of drinking water quality on diarrheal disease in good and poor sanitary conditions using a random sample of 2,355 Filipino infants over the first year of life. The study provides powerful confirmation of the importance of environmental factors on diarrhea: The effects of water quality, household sanitation, and community sanitation are strong, consistent, and statistically significant. The positive impact of improved water quality is greatest for families living under good sanitary conditions, with the effect statistically significant when sanitation is measured at the community level but not significant when sanitation is measured at the household level. Improving drinking water quality would have no effect in neighborhoods with very poor environmental sanitation; however, in areas with better community sanitation, reducing the concentration of fecal coliforms by two orders of magnitude …